1/06/2009 @ 5:20PM

Five Must-Read Books For The Chastened CEO In 2009

The economic downturn has brought even the most arrogant CEOs to their knees, and it has created a potentially valuable teaching moment for those would-be masters of the universe. To help them begin the new year in the proper spirit, here are five books to peruse in 2009.

1. The Halo Effect: … and the Eight Other Business Delusions That Deceive Managers, by Phil Rosenzweig (Free Press, 2007).

You’ve seen the titles–In Search of Excellence, Good to Great–and you know the gurus, yet somewhere deep inside you’ve had a sneaking suspicion that these marvelous just-so stories of how to grow your business and think outside the box without boiling the ocean might just be a bit too good to be true. Guess what? You’re right. That’s the conclusion of Phil Rosenzweig’s delightful critique, which systematically destroys the entire management jujitsu oeuvre. This literature turns out to be dominated by success stories that are often the exception rather than the rule and by the highly selective, and convenient, application of statistics. Shocking as it is to learn that trusted management advisers might use the power of impressive-looking data to justify pre-determined conclusions, Rosenzweig shows that to be the methodology behind much of the business self-help genre.

Of related interest: House of Lies, by Martin Kihn; Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management, by Jeffrey Pfeffer and Robert I. Sutton; the 1999 movie Office Space; flair (see Office Space).

2. Expert Political Judgment: How Good Is It? How Can We Know?, by Philip E. Tetlock (Princeton, 2006).

Maybe the revelation that pundits, political and otherwise, have feet of clay doesn’t constitute news this election cycle–certainly not after last year’s New Hampshire primaries. Still, the next time you are tempted to shout at your television, “Why am I listening to this bozo?” you can be comforted by knowing that a leading political scientist at Berkeley feels your pain and has the data to back you up. Philip Tetlock has spent his life rigorously evaluating the claims of experts, and he’s arrived at essentially the same conclusion as Yogi Berra: It’s tough to make predictions, especially about the future. That’s certainly worth keeping in mind the next time you’re asked for a 10-year revenue forecast–or the next time you demand one. Spoiler alert: If you’re too lazy to read the book, or too cheap to buy it, Louis Menand has a terrific review here, and you can listen to Tetlock explain his views here.

Of related interest: All’s Fair: Love, War, and Running for President, by Mary Matalin and James Carville; Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition, by Guy Kawasaki; the 1979 movie Being There.

3. Thinking in Time: The Uses of History for Decision Makers, by Richard E. Neustadt and Ernest R. May (Free Press, 1988).

Those who do not remember the past are condemned to repeat it, as George Santayana memorably wrote a century ago–a sentiment that the rest of us have been condemned to hear repeated ever since. Fortunately, there’s a rational, albeit less pithy, rejoinder to this aphorism: Neustadt and May’s classic Thinking in Time. The big idea here is that plucking examples from the past can be a dangerous and misleading business, and you’d better think really carefully to be sure the same lessons apply. Often they don’t. Given the tendency people have to disproportionately base their pivotal management decisions on either recent salient experiences or perceived historical analogies, this book can serve as an urgently needed moderating perspective.

Of related interest: The Pity of War: Explaining World War I, by Niall Ferguson; The Shock of the Old: Technology and Global History Since 1900, by David Edgerton; Ruling the Waves: From the Compass to the Internet, a History of Business and Politics Along the Technological Frontier, by Debora L. Spar.

4. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, by Nassim Nicholas Taleb (Random House, 2008).

A cross between Vizzini in The Princess Bride and Charlie Eppes in Numb3rs, Nassim Taleb is a brilliant, brilliant man–and he wants to be sure you know it. The catch: He just may be right. He’s perhaps best known for his 2007 runaway best-seller, The Black Swan, a book that anticipated to a remarkable extent much of the current financial crisis (see my original review in TheWall Street Journalhere). But he first articulated much of his thinking in his original 2001 version of Fooled by Randomness, an equally entertaining, and ostentatiously obnoxious, romp through the ways in which we permit ourselves to be deceived by chance. It’s absolutely essential reading for anyone who might mistakenly believe their own hype, or who might overestimate the ability of fancy math to domesticate wild randomness. (Disclosure: Following publication of my original review, I met Taleb, and we subsequently collaborated on a commentary about pharmaceutical strategy for the Financial Times, viewable here.)

Of related interest: The Black Swan: The Impact of the Highly Improbable, by Nassim Nicholas Taleb; The (Mis)behavior of Markets: A Fractal View of Risk, Ruin & Reward, by Benoit Mandelbrodt and Richard L. Hudson; iocane powder (see The Princess Bride).

Our culture loves the heroic myth that progress, particularly medical progress, grows in a linear and inevitable way from fundamental scientific insight to useful application. If you don’t believe me, you’ve probably never seen the film Outbreak, and you didn’t lose your shirt in the genomics bubble of the late 1990s. Happy Accidents explodes many of the myths around this notion of progress and reveals the role chance and empiricism have played and will play in medical discovery. Meyers’ view of history tends to be a bit pat and, in its way, cloyingly moralistic, but his essential insight–that our grasp of human biology is appreciably more fragile than we typically appreciate–is exactly right. It represents a particularly useful and humbling message for managers in this high-tech era.

Of related interest: Discovering, by Robert Root-Bernstein; The Private Science of Louis Pasteur, by Gerald L. Geison; Intuition, by Allegra Goodman; The House of God, by Samuel Shem.

Bonus bargain recommendation: Some of the central ideas articulated in the books above derive directly or indirectly from the remarkable work of the Princeton psychologist Daniel Kahneman, who won a Nobel Prize in economics in 2002 for his studies demonstrating that we are a lot less rational than we think we are. It has become standard practice for trendy new books about behavioral economics to spend a chapter or two summarizing Kahneman, in large part because he has never really written for the masses (that would be us), and his published books are collections of scientific articles that don’t make for particularly light reading.

Fortunately, there is at least one good, cheap alternative: Kahneman’s Nobel Prize address, available for free here. It’s still fairly complex, but it covers a remarkable amount of ground in a relatively accessible fashion, and it underscores just how pivotal and pervasive his ideas have become. It just might keep you from losing your shirt in this new year.

David A. Shaywitz, a physician-scientist, is a management consultant in New Jersey.